Gratuity

What it means

Gratuity is a payment the law requires an employer to make to an employee when the job ends. Since 21 November 2025, when the four labour codes came into force, the rules are in Chapter V (Sections 53 to 58) of the Code on Social Security, 2020. Section 164 of the Code repeals the Payment of Gratuity Act, 1972, which governed gratuity before.

Under Section 53, gratuity is payable on the end of employment after continuous service of not less than five years, whether the employee retires, reaches superannuation, resigns, dies or is disabled by accident or disease, or a fixed term contract expires. The five year condition does not apply when employment ends because of death or disablement, or on the expiry of fixed term employment. The Ministry of Labour has said that fixed term employees become eligible after one year of service.

The amount is fifteen days of wages for every completed year of service, or part of a year above six months, based on the wages last drawn. For a monthly paid employee the daily rate is the monthly wages divided by 26. Wages under the Code include basic pay, dearness allowance and retaining allowance. The total cannot exceed the ceiling notified by the Central Government. Workers in seasonal establishments get seven days of wages for each season.

Section 56 says the employer must work out the amount and give written notice of it to the employee and the competent authority, and pay it within thirty days of the date it becomes payable. Late payment carries simple interest at a rate the Central Government notifies, unless the delay was caused by the employee and the employer has written permission from the competent authority to pay late on that ground. Gratuity can be withheld only on the grounds in Section 53(6): to the extent of loss caused by damage to the employer's property for which the employee was dismissed, or wholly or partly where the employee was dismissed for riotous or disorderly conduct, violence or an offence involving moral turpitude in the course of employment.

The law

When it matters

• You are resigning or retiring after five or more years with the same employer and want to know what you are owed.
• Your fixed term contract is ending and you want to know whether gratuity is payable.
• Your employer has not paid gratuity within thirty days of your last working day.
• A family member has died while in service and you need to claim the gratuity as nominee or heir.
• Your employer says it will forfeit your gratuity after a dismissal.

Example

Meena resigns after 7 years and 8 months with a company. Her last monthly basic pay and dearness allowance together come to Rs 39,000. The extra 8 months count as a full year, so her service is 8 years. Her gratuity is Rs 39,000 divided by 26, times 15, times 8, which is Rs 1,80,000, and the employer must pay it within thirty days.

Watch out for

• The Code applies gratuity to factories, mines, oilfields, plantations, ports and railway companies, and to every shop or establishment with ten or more employees on any day in the previous twelve months. Smaller establishments are covered only if the government notifies them.
• The maximum amount is whatever the Central Government has notified. Check the current figure before relying on any number you see online.
• Make or update your nomination. Section 55 asks every employee who has completed one year of service to make one, and without it the money goes to the heirs, which can take longer.
• The labour codes came into force on 21 November 2025 and their rules were still being put in place. If your service ended before that date, the Payment of Gratuity Act, 1972 may still govern your claim.

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